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Deep in the last stronghold of the struggling US auto industry, Rosario Criscuolo says he owes the survival of his business to Toyota Motor Corp. "If it werent for Toyota, Id be gone," said the owner of Spartan Auto Group, which runs three auto dealerships selling Toyota, Lexus, Infiniti, Volkswagen and Mazda brand cars. "Without them Id be selling papers on the corner."
To fund the $25 million worth of gleaming new cars at his showrooms, including here in Michigans capital, Criscuolo needs floorplan financing, or inventory loans.
Floorplan financing is the lifeblood of US auto dealers because it allows them to pay for vehicles when they take delivery and carry them until they find a buyers. But many auto dealers say the credit crunch has left them unable to bring in new cars or keep those they already have, choking off production by the US automakers.
"If we dont fix this wholesale credit issue, this whole thing collapses," said John McEleney, National Auto Dealers Association chairman, who owns two dealerships that between them sell Toyota, General Motors and Hyundai branded cars. "Every week there are more dealers that are being impacted and going out of business."
In Criscuolos case, his bank lenders stopped providing floorplan financing. Had Toyotas finance arm not taken over funding for all his brands, he would have been in trouble. "They have tightened credit lines a little, but Im very fortunate to have them," he said.
His sales have improved in March, he said, but over the winter, monthly sales at his Lansing dealership fell by about half. So Criscuolo cut advertising spending and turned the heat down a few degrees to save money.
"Cash is king right now," he said. To help dealers in worse shape than Criscuolo, the NADA and two other dealer associations have called on US President Barack Obama to have the Federal Reserves Term Asset-backed Loan Facility - set up to provide $200 billion to finance new debt backed by auto, credit card, student and small business loans - to boost floorplan financing. Rating agency downgrades for auto finance companies like GMAC LLC have cut off access to TALF funds.
SPIKE IN CLOSURES:
US auto sales fell nearly 40 percent in the first two months of the year to their lowest level in 27 years. As a result, the NADA expects 1,200 dealerships will go under in 2009, up from 900 in 2008. Job losses at US dealerships over the past 12 to 14 months exceeded 50,000.
"This is a huge problem spread out across little and large communities across the country," said Russ Darrow, chairman of the American International Auto Dealers Association, who owns 15 dealerships in Wisconsin, selling US and foreign brands.
Bob and Mary Cockerham run a dealership in Santa Fe, New Mexico, selling Kia brand cars. Their sales are down about 500. With most of their financing cut off, they say they are fighting for survival. "There are thousands of Marys and Bobs out there who will go out of business unless something happens," Bob Cockerham said. "But it doesnt have to be this way."
GOVERNMENT GUARANTEES:
The lack of floorplan financing stems from the collapse in the asset-backed security market, analysts say. Mirko Mikelic, a portfolio manager at Fifth Third Bank said the sale of asset-backed securities guaranteed under the TALF by Nissan Motor Co Ltd and Ford Motor Co was a positive sign, but the government "needs to do more to address this issue and bring confidence back to the market."
In the meantime, dealers like Jeff Williams, who sells VW, Subaru and Audi cars near Lansing are doing everything they can to save cash. Williams said he is working closely with VW and Audis finance arms and cut his inventory. "I havent even tried to get floorplan financing from anyone else because I know wouldnt get it," he said. "Some people I know have been cut off by banks overnight."

Copyright Reuters, 2009

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